The Condo Insurance Crisis, Presented by CAI Canada

Normac was excited to participate in the recent CAI Canada‘s first virtual conference, V CON(DO) 2020. We enjoyed meeting people during the virtual tradeshow and we’re pleased to sponsor the panel session, The Condo Insurance Crisis: Where do we go from here?

Watch the full presentation here:

Key take-aways:

  1. Get a current replacement cost appraisal regularly to ensure you are paying the correct premiums and have sufficient insurance coverage.

  2. Get a reserve fund study and maintain your building. This can help to prevent incidents and claims, and make you more attractive to insurers.

  3. Use your insurance for emergencies and accidents, not maintenance.

  4. Upgrade elements after a loss instead of just replacing them. Example: Frequent hail damage? Get a hail resistant roof, such as rubber shingles.

An insurance appraisal by Normac ensures that you always have a current replacement cost value for your property. This means you will always be sufficiently insured in the case of a total loss, that you can receive better terms and insurance rates, and that you fulfill your fiduciary duty set by your provincial condominium bylaws . 

Ask us for a complimentary, no-obligation quote today.

Understanding Condominium Insurance

CondoTalk: Riding the Rising Insurance Wave, Pt. 1

The other week, Normac was proud to sponsor CCI Golden Horseshoe’s popular CondoTalk webinar, Riding the Rising Insurance Wave.  With an impressive panel of speakers, this educational seminar covered all things related to condominium insurance. We’ve put together some of the key take-aways for condominium insurance and have included the full webinar recording below. Enjoy!

According to the Ontario Condominium ACT (the OCA), section 99-106, property insurance is required and should cover the common elements and standard unit. It excludes betterments and improvements made by individual owners. The purpose of the subsection above is to manage the risk for the Condo Corporation, Owners, and Mortgagees. Although owner’s insurance is not mandatory, it is encouraged and some corporations might consider writing it into their bylaws.

99 (1) The corporation shall obtain and maintain insurance, on its own behalf and on behalf of the owners, for damage to the units and comment elements that is caused by major perils or the other perils that the declaration or the by-laws specify. 1998, c. 19, s 99 (1).

When it comes to replacement cost, the condo corporation must insure the property to its full replacement cost. The only way to ensure an accurate replacement cost valuation is to have the property appraised by a professional, third party appraiser, like Normac.

99 (7) Subject to a reasonable deductible, the insurance required under this section shall cover the replacement cost of the property damaged by the perils to which the insurance applies. 1998, c. 19, s 99 (7).

In addition to the insurance policy, a Standard Unit Definition (SUD) is recommended and provides three main benefits:

  1. Equalization: All unit owners are governed by the same SUD and there are no discrepancies as to the standard finishing of the unit.

  2. Clarification: As older condominiums may have cycled through multiple owners, a SUD helps determine what is to be covered by the condominium’s insurance, versus what is a betterment that a previous owner may have installed and should be covered by the unit owner’s insurance.

  3. Opportunity: A good SUD will ensure that a unit will always be returned to a livable and sellable condition, regardless of what the owner’s policy is, or their level of care. It also prevents people from abusing the system.

A good SUD will clearly identify all the standard finishes and fixtures in a unit, providing a clear distinction between what is the unit owner’s responsibility and what is the condo corporation’s responsibility.

As compared to a barebones bylaw, which might offer corporations lower premiums in exchange for more risk, a clearly defined SUD can help prevent disputes between owners, the corporation, and insurance adjusters.

The OCA says the condo corporation can charge back a deductible if an owner damages their unit through an act or omission. However, the Act also allows corporations to pass their own bylaws that holds owners accountable for damage to other units or the common elements, irrespective of any act or omission within their own unit.  Having clearly defined deductible bylaws assists in determining what can be charged back to the owner and when. Here is a good explanation of why you need to have explicit bylaws regarding deductibles.

Insurers are now also offering deductible coverage as an option to owners under their personal policy to cover deductibles that the corporation might charge back to them. If you are living in a building where the deductible is very high, it is worth asking your broker if you are eligible for such coverage.

It is essential that unit owners and the condo board have a thorough understanding of the Certificate of Insurance and policies, the deductible/chargeback provisions, and the Standard Unit Definition. As a Property Manager, holding educational seminars or townhall meetings with the Insurance Broker is a great way to keep owners informed.

As condo boards turn over frequently, the Property Manager should review and explain the insurance documents annually. Board of Directors should also be encouraged to attend various education seminars (like this one!) so they can be knowledgeable about industry trends and best practices.

It is essential to share the SUD with all owners and help them understand what is covered within the condo’s insurance policy. Only when an owner is made aware of what is in fact a betterment and not a standard finishing, will they know what should be covered within their own policy.

With regards to the deductible,  the Act states that if a deductible increases or decreases upon renewal of the condo’s insurance policy it must be communicated to the owners in the form of an Information Certificate Update (ICU) and sent to them along with an updated copy of the Certificate of Insurance. It is suggested that a cover letter be attached to simplify what changes have been made to the policy.

When handling claims, it is important to take a proactive approach. Having an action plan in place before an incident happens will assist in dealing with and mitigating any loss. It is encouraged that Property Managers notify the Insurance Broker of an incident right away. This does not necessarily mean that a claim is being opened, but rather it ensures that the facts are recorded at the time of the incident in case a claim is opened later on.

The following is a list of common claims and best practices for handling them:

Water Loss

  • Determine the source of water and stop the leak, when possible (ex. shutting off a water valve versus a waiting for rain to stop when the roof is leaking)
  • Ask insurance provider for preferred contractors and immediately contact a restoration company
  • Notify Insurance Broker of the issue and have an adjuster assigned if you are opening a claim

Major Peril

  • Visit the affected site and determine the extent of damage, this can alleviate the stress that owners may be facing
  • Notify owners that restoration has been called
  • Give owners realistic expectations of a restoration timeline
  • Contact Insurance Broker and work with them to revert the unit back to the standard unit definition

Slip & Fall

  • Act immediately when incident occurs
  • When possible, head to site and take pictures and detailed notes (weather, what footwear the person was wearing, were there witnesses)
  • Contact the person injured and speak to them about the incident (never accept liability, just take notes)
  • Notify Insurance Broker as soon as incident takes place, again at least put it on record
  • Take detailed notes at the time of the incident, often these types of claims are made many months later and it can be difficult to recall the facts

There are a few compounding factors for today’s high insurance rates:

  • Market Competition – When condominiums first started gaining popularity in the 70s and 80s, lots of markets (insurers) came in thinking they could do better than everyone else and this drove rates down. Now, many insurers are pulling out of property insurance, driving rates up.
  • Aging Class of Business – 40-50 years ago, everything was brand new and the risk for insuring these condominium properties were low. Today, this is an aging class of business – the infrastructure is deteriorating and many properties have not been properly maintained.
  • More High-End Developments – New condominium development has been exploding across the country and the replacement cost values are going up as developers use premium materials to create an elevated living experience and lifestyle.
  • Catastrophic Events – Weather related events have caused significant damage around the world and the property insurance market has been hit especially hard. With the number of claims and their values rising exponentially, insurers have been operating at a loss.

All of this has helped create a Hardened Insurance Market. Insurance is all about money in (premiums) and money out (claims). After decades of low rates followed by substantial losses in the realty and the condominium business across the country and globally, we are now seeing a correction. Rates are going up so that insurers can recover money, deductibles are going up to help prevent smaller claims, and the market is shrinking meaning there is less competition.

Although the values of claims have gone up significantly, higher deductibles are deterring smaller claims from being made. As a result, it is expected that premiums and deductibles will continue to go up, however at a more moderate pace than the past few years.

We are in a day and age where “best in class” reflects the best possible rate in the circumstances, as opposed to the best rate. The number one way to improve your rates is to stay on top of maintenance to help mitigate any potential losses and reduce your risk.

Secondly, inform owners to maintain their own units; upgrade their fixtures, replace aging appliances, and take care of their unit. It’s important to have a community mindset that reinforces the idea that when an incident occurs, it affects everyone. Take responsibility and respect your shared asset.

Thank you to our panel of professionals for sharing their insights. Stay tuned for Part 2 of this webinar coming soon!

Maria Durdan
Partner, SimpsonWigle LAW LLP
Chair, Condominium Practice Group

Mark Shedden
CEO, Atrens-Counsel Insurance Brokers

Michelle Joy, RCM, BA 
Director, Condominium Management, Wilson Blanchard

Richard Elia, B.Comm., LL.B., LL.M. (ADR), A.C.C.I.
Sr. Lawyer, Elia Associations

An insurance appraisal by Normac ensures that you always have a current replacement cost value for your property. This means you will always be sufficiently insured in the case of a total loss, that you can receive better terms and insurance rates, and that you fulfill your fiduciary duty set by your provincial condominium bylaws . 

Ask us for a complimentary, no-obligation quote today.

Trend Watch: Mass Timber Construction

Brock Commons Mass timber construction
After becoming the first province to allow mass timber towers up to 12 storeys in 2019, BC is now pledging to support the forest industry by encouraging the use of mass timber building products in its capital construction programs. This includes the future development of St. Paul’s Hospital and the Royal BC Museum. Last month, BC Premier John Horgan appointed Ravi Kahlon, Parliamentary Secretary for Forests, Lands, Natural Resource Operations and Rural Development to lead the expansion of mass timber in BC buildings.

"As our economy bounces back from the COVID-19 crisis, we want to do everything we can to support forest workers. By focusing on mass timber, we have an opportunity to transition the forestry sector to high-value over high-volume production. This will mean opportunities for local workers, strong partnerships with First Nations and greater economic opportunity while making a significant contribution to advancing CleanBC."

John Horgan, BC Premier, https://news.gov.bc.ca/releases/2020PREM0033-001076

Benefits Of Mass Timber

Premier Horgan claims that the use of mass timber is cost-effective, sustainable, and generates jobs for BC’s forest communities and workers. The increased demand from both local and global markets will help to revitalize the industry, increasing production in forest communities and creating jobs.

The use of mass timber will also offer a cost-effective solution for the construction industry. Because mass timber products are custom-made off site and assembled on-site, construction time can be reduced by up to 25%. Using this method of building, constructions sites are also cleaner and safer due to fewer hot tools and machinery.

Tall wood buildings are considered sustainable for multiple reasons.

  1. Mass timber has a lower carbon footprint than concrete or steel as it is made of a natural resource. Additionally, as it is only one-fifth the weight, mass timber panels have reduced transportation emissions and decreased congestion to and around construction sites.
  2. Mass timber generates less waste since panels are manufactured custom for each application. Scraps may be re-used by the manufacturer.
  3. Mass timber is sourced from sustainably managed forests, of which Canada is a leader.  One BC company, Structure Craft, is even engineering mass timber products from beetle-kill wood which would otherwise be waste, or worse, kindle for catastrophic wild fires.
One other benefit, specifically important to British Columbians, is that buildings using mass timber are more earthquake resistant. Structurally, mass timber weighs less than concrete and steel, and is more pliable, therefore the impact on the building is reduced.

The provincial government in Ontario is also in support of mass timber and tall wood structures, having prepared a comprehensive technical resource for engineers, architects, designers, fire service, and building officials.  This guide focused on two important topics: architectural design and fire safety.

Building Codes + Safety

In Spring of 2019, BC updated its provincial Building Code to allow the construction of wood buildings up to 12 storeys tall, doubling the previous maximum height of six storeys.  At the same time, 13 BC communities signed up as early adopters of mass timber technologies. These communities represented 35% of the province’s housing starts in 2018. To be eligible, each community was required to have the following:

  • Support from their city council and the planning, building and fire departments;
  • Level 3 certified building officials; and
  • Land use bylaws for buildings higher than six storeys.
The National Building Code 2020 will soon see the same revisions and it’s believed that UBC’s Brock Commons helped pave the way for taller wood buildings across the country and around the world.

Until now, the biggest hindrance to the use of mass timber in construction was building codes, which deemed tall wooden structures a fire hazard. However, thanks to new mass timber building technologies and techniques, tall wood structures are as safe or safer than traditional steel or concrete structures.

Cross Laminated Timber (CLT), for example, holds a high level of fire resistance thanks to its cross-sectional thickness and air-tight construction, reducing a fire’s ability to spread. If a fire does ignite, the burn is slow and predictable, meeting fire resistance ratings. Fire resistance can and should be enhanced with fire-resistant lining to the flooring or walls.

For Brock Commons, Vancouver Fire and Rescue Services (VFRS) was involved in the project early on, overseeing the initial approval process and executing the fire and safety plan. The project required a site-specific regulation that included fire and seismic standards exceeding those for steel and concrete buildings. Check out VFRS video covering the specifics of Brock Commons’ fire safety measures, which included compartmentalized spaced to prevent a total loss, which is common with traditional wood structures.

Cause For Concern

The debate about safety is not a closed case, however. While building codes are changing, insurers and insurance brokers are still uncertain of the risks posed by tall wooden structures using mass timber. Canada’s condominium market is already under scrutiny in the face of a hard insurance market. New constructions using mass timber may see additional premium hikes due to existing concerns about wood structures.

A recent study conducted in the US by Boston College found builder’s risk insurance quotes for concrete buildings to be 22-72% less than quotes for wood frame buildings, and quotes for commercial property coverage was 14-65% less than wooden frame structures. It should be noted that this study was commissioned by the National Ready Mixed Concrete Association (NRMCA) and did not differentiate between dimensioned lumber and engineered lumber which has a higher fire resistance rating.

On the other hand, Vancouver based Globe Advisors conducted a similar study that suggested there were other factors for determining higher insurance costs in wooden structures than fire peril alone. This study indicated that wood buildings are less durable, cost more to maintain, and have shorter life spans, all leading to difficulty in obtaining insurance for wood frame structures.

In addition, wood structures can have major moisture management issues leading to mold. Prevalent in BC and Central Canada, mold not only creates structural issues for the building, but it can also pose significant health risks to occupants, including coughing, nasal congestion, eye, skin, and throat irritation, and can sometimes be fatal.

The study emphasizes the importance of minimizing factors that could lead to mold and water damage in wood structures and claims that much of the annual losses from lumber decay is preventable. There is no one-size-fits-all when it comes to wood structure construction across Canada – what works in Prairie provinces, may not work in the coastal region.

According to the Insurance Bureau in Canada, water damage costs insurers, on average as of 2016, more than $1.7 billion annually. This includes water damage caused by flooding, sewer back ups, and burst pipes which can all lead to expensive repair and clean up bills for insurers. Wood structures are more susceptible to excessive water damage caused by any of these man-made or natural disasters.

Time will tell if insurers will begin to favour the new technologies of mass timber over steel or concrete. Mass timber technologies will need to address all of these additional and important concerns: durability, fire safety, and moisture. For now, BC is committed to growing its mass timber industry and will continue to innovate and find long term, sustainable solutions for the construction industry.

Notable Mass Timber Projects

Check out this interactive map of mass timber projects being developed around the world.

The experts at Normac keep their finger to the pulse of the construction industry and are familiar with all construction types, materials, and techniques that might impact replacement cost. For a complimentary, no-obligation quote, click here.

Property Managers’ Reopening Guide

Property Managers Reopening Guide

While most of the country is entering various phases or reopening, Ontario is heading into phase 2 of its 3-step reopening. More businesses will now be allowed to operate, public and social gathering restrictions will be loosened, and religious gatherings will now be permitted.

The government of Ontario has implemented workplace health and safety measures to guide businesses, organizations, and public spaces safely reopen. Officials have advised to continue following physical distancing measures to prevent the spread. Below are highlights from the Property Managers’ reopening guide.

What Does Phase 2 Mean For Property Managers?

As essential service providers, condominium managers have a fiduciary duty in keeping their Corporations safe amidst COVID-19. The Condominium Management Regulatory Authority of Ontario (CMRAO) conducted a survey in May on how the Ontario state of emergency had impacted property managers and identified the top three areas of concern at this time: holding meetings, entering owners’ units, and the use of common elements. According to the survey, 85% of respondents have developed plans to help their clients adapt as the government loosens restrictions and 83% of respondents have discussed these plans with their boards.

Holding Meetings

The holding of board meetings and owners’ meetings including AGMs have been temporarily amended in accordance to the changes in the Condominium Act, 1998. Condos now have an additional 90 days after the state of emergency ends to hold their AGMs. For those who had their AGMs scheduled within 30 days after the state of emergency, now have an additional 120 days. This amendment has been put in place only for those Corporations that have been affected by the pandemic, for example, if your year end fell after September 17.

The Condominium Management Regulatory Authority of Ontario (CMRAO) has suggested to hold board and owners’ meetings virtually when possible. If physical meetings are necessary, it is advised to maintain safe physical distancing measures and the use of personal protective equipment (PPE).

Entering Owners' Units

At this time, property managers are put in a difficult situation where they must respect the space of individual unit owners, while at the same time look out for the best interest of the Corporation. As unit owners may be hesitant to allow contractors into their units, there are precautionary measures that should be taken to ensure any health risk is mitigated as best as possible.

The CMRAO suggests that:

  1. The unit owner be provided with reasonable notice and given a fair opportunity to prepare themselves for when their unit will be entered.
  2. You or any service providers and the owner maintain a safe distance from one another.
  3. Proper use of personal protective equipment (PPE) be used at all times.
  4. Any and all other rules and guidelines are being followed as recommended by the government and Chief Medical Officer of Health.

It is important that managers communicate with contractors to ensure they are adhering to the safety measures put in place to protect owners. If the owner is hesitant to allow any work done inside their unit, carefully consider their concerns and accommodate them as best as possible. If the work is not time-sensitive, a reasonable effort can be made to postpone work to a later date.

Use of Amenities And Common Space

Condo managers are advised to discuss with their boards a plan in reopening amenities and common elements. The CMRAO advises collecting information on:

  • Normal capacity of amenities
  • Cleaning/disinfectant schedules
  • Ventilation systems within specific amenities
  • Reservation systems/processes
  • Hours of operations
Once this information has been gathered it is suggested that Corporations and Property Managers implement the following protocols:

  • Mandatory booking required to use amenities
  • Requiring residents to disinfect equipment before usage
  • Staggering operating hours to allow for more frequent disinfection
  • Lowering capacity to ensure appropriate physical distancing is possible
  • Changing the configuration or allowed usage of specific equipment, such as blocking specific gym equipment or barbecues on specific days so that residents maintain appropriate distancing
It is important to keep in mind current public health recommendations as well as the necessary measures to protect staff and residents when developing these plans.

Additional Recommendations

As condos differ in size, number of residents, and geographical location – All property managers are advised to take an approach that considers the unique needs of their condominiums. What works for one may not work for yours. In keeping with the evolving nature of Covid-19, it is important to stay up to date with public health recommendations and adjust protocols, when necessary.

Changes in British Columbia

As other provinces begin their reopening, these recommendations can also apply to property managers across the country. In BC, the Strata Property Act was amended to accommodate strata councils needing to meet virtually or postpone meetings all together. You can read more about this on our blog, COVID-19 Amendments to the Strata Property Act.

Other recommendations can be found on the BC’s Government website, here.

Changes in Alberta

A similar relaunch strategy is also happening in Alberta, with some variances to how much is reopening. While the Alberta Condo Act has also been amended to allow for delayed meetings, currently a Corporation’s right to enter an owner’s unit is suspended until further notice.

A complete list of amendments and recommendations can be found on the Alberta Government site here. They also have prepared a useful PDF for download, here.

Normac has also entered the second phase of our COVID-19 protocols.  With staff returning to the office and some site visits resuming, you can read more about our response, here.

We continue to deliver the same high standards and exceptional customer service that our clients have come to know and rely on. We have the technology and systems in place to continue delivering replacement cost valuations accurately and on time. If you are in need of an up-to-date valuation or are considering switching providers, we make the process easy. Request a quote from us today.

COVID-19 Amendments to the Strata Property Act

Strata Property Act

The whole country has been forced to adapt to a new way of life thanks to COVID-19. From the way restaurants operate, to how we educate and care for our children, to the adoption of virtual hangs outs and meetings; nearly all industries and social experiences have been affected. This includes the manner in which business is conducted for BC’s strata corporations. Here is a summary of the recent BC Strata Property Act (SPA) amendments made to alleviate the effects of the pandemic.

Electronic Meetings

The first amendment made to the Strata Property Act came into effect on April 17, 2020. The Minister of Public Safety and Solicitor General issued an order under the Emergency Program Act which enables all strata corporations to conduct meetings electronically, regardless of whether or not the strata has an existing bylaw allowing electronic meetings.  That includes annual general meetings (AGMs), special general meetings (SGMs), and hearings that take place during a provincial state of emergency.

With restrictions on gathering ordered by the BC Public Health Officer, electronic meetings will allow strata corporations to comply and maintain the health and well being of owners. Electronic meetings can be held either by telephone conference calls or online video conferencing applications. For those without reliable access to a computer, they may choose to attend in person or participate via proxy.

The Condominium Home Owners Association (CHOA) has further interpreted this Strata Property Act amendment and shared a helpful checklist for holding electronic meetings.

Alternative options to electronic meetings may include delaying, relocating, waiving an AGM, or using restricted proxy voting. More on this here.

Delayed Meetings

There were two amendments to the Strata Property Act made via an Order-in-Council on May 29, 2020. First, strata corporations will be allowed an additional two months to hold an AGM or SGM if there is a local or provincial state of emergency in effect during the month before the statutory deadline for the meeting.

Example: To comply with the Strata Property Act, the strata corporation must hold an AGM by April 30. There is a state of emergency in BC that ends on April 15. The new deadline to hold the AGM is June 30.

This additional time will allow the strata council to develop and implement a new meeting format and effectively communicate the changes to owners.

The regulation change will apply to all future states of emergency and will provide flexibility during other unexpected disruptions such as floods and forest fires. More on this on the Government of BC’s website.

Paying For Insurance

The second amendment made via order-in-council on May 29th is intended to clarify that strata corporations may use their contingency reserve fund to pay for increased insurance premiums, without approval from owners, if payment is required before there is time to hold a general meeting.

The change will protect strata corporations who may not be able to approve a new budget during a scheduled AGM due to gathering restrictions or other delays caused by the pandemic. The ability to pay for unanticipated expenditures, such as increased insurance premiums or COVID-19 expenses, gives the strata corporation some flexibility to meet payment deadlines. It is only permissible to do so if there are reasonable grounds to justify an immediate expenditure, such as to ensure the safety of the corporation and owners, or to prevent significant loss or damage.

Since the contingency reserve fund is intended for future repairs and replacements, it is important that the strata corporation replenish the funds used for an urgent unapproved expenditure as soon as they can. This can be done either via a special levy, or an increase in strata fees. More about strata finances and strata fees here.

Business As Usual

Property Management and the work of strata corporations are essential services, now more than ever with much of the population spending increased time at home. That includes the 32,000+ strata corporations across the province. In support of strata communities, the Ministry of Municipal Affairs and Housing, the Ministry of Finance, the Real Estate Council of BC, strata homeowner associations, and strata property managers are meeting regularly to determine best practices and share resources. 

The Government of BC has compiled a comprehensive resource, interpreting the Strata Property Act during the pandemic and to share amendments to the Strata Property Act on their website: Information for COVID-19 Strata Housing.

Other useful resources have been put together by the Vancouver Island Strata Owners Association (VISOA), including their COVID-19 Resources for Strata Corporations, and documents prepared by strata lawyers, COVID-19 and Strata Corporations and Guidance Regarding AGMs and SGMs.

CHOA also has compiled a lengthy list of bulletins and resources for managing during the COVID-19 pandemic, including specific information from BC’s Regional Health Authorities, WorksafeBC, the Real Estate Council of BC, and more.

Normac’s vision is to provide peace of mind to our clients everywhere. During the COVID-19 pandemic, we continue to deliver the same high standards and exceptional customer service that our clients have come to know and reply on. We have the technology and systems in place to continue delivering replacement cost valuations accurately and on time. If you are in need of an up-to-date valuation or are considering switching providers, we make the process easy. Request a quote from us today.

Hard Insurance Market: What Can Stratas / Condo Boards Do To Protect Themselves

What Can Condo Boards Do To Protect Themselves In This Hard Insurance Market

Recently, we posted articles about the hard insurance market and its impacts on the BC condo housing market.  The news about sky-high insurance premiums and deductibles, condominiums with loss limits or no coverage at all has many condo owners and boards panicking . They are turning to their insurance brokers and asking, what can we do to make our property more attractive to insurers?

The answer isn’t simple and the results won’t be seen overnight, but the best thing that condo boards can do is take better care of their property.

What Are Insurers Looking For?

The insurance industry is not regulated and as with any business, they can choose where to conduct business based on where they can be successful. In today’s technology era, access to data has become more available and insurance companies are seeing their losses instantly and accurately. Because of this, they can respond more quickly by pulling out of lines of business that are not seeing profits. With fewer players, the remaining insurance companies are tightening their underwriting and increasing their prices.

Multi-resident properties are especially prone to more claims. This is due to the construction of the properties (a leak on the 18th floor of a high rise building can do more damage than a leak on the second level of a single family home) and because of the community-mentality many owners have (“it’s not my problem, it’s the corporation’s problem”). Because of this, many insurers have backed out of the multi-residential property market.

Those insurers who have stayed in the market are looking for properties with the least amount of risk.  The Insurance Bureau of Canada lists 10 factors that typically affect premiums, and here is a summary of the most crucial points:

  • Replacement Cost: those buildings which are more expensive are under more scrutiny
  • Claims History: past claims are often indicative of future claims
  • Repair and Maintenance: insurers are looking at your pipes, roof, electrical and more to determine if you are at risk of an accident caused by deficiencies
  • Location: are you in an at-risk area for fire, flood, earthquake and if so, what preventative measures have you taken

There are a number of things both strata / condo corporations and unit owners can do to protect themselves and makes themselves more attractive to insurers.

What Can Strata / Condo Corporations Do To Protect Themselves?

  1. Obtain a Depreciation Report or Reserve Fund Study and strictly follow a regular maintenance, repair and replacement plan. Increase condo fees annually to ensure your contingency reserve fund is adequately funded.  This can be one of the single best ways to ensure your building has fewer claims.

  2. Revise bylaws to make the corporation responsible for the inspection of unit appliances and fixtures – check dryer vents, smoke detectors and fire alarms, aging appliances. Make unit owners responsible for repair or replacement when required.

  3. Invest in preventative measures such as installing sprinkler cages in hallways or water leak detectors.

  4. Ensure all trades have insurance before conducting any work on your property.

  5. Educate owners to be more careful and take more responsibility for their actions. The corporation should reinforce the idea that insurance should not be used for maintenance, it should be used for accidents which are not preventable.

What Can Unit Owner Do To Protect Themselves?

  1. Ensure they have unit owner’s insurance to protect personal property and unit betterments.

  2. Find out what are the corporations bylaws related to passing on deductibles to owners and ensure they have adequate coverage should they be deemed responsible for a claim.

  3. Follow the recommended usage and maintenance for all appliances – don’t run washing machines and dishwashers if you are not home.

  4. Follow the corporation’s annual maintenance guidelines, such as turning off water lines in the winter and in general, take better care of their units and shared property.

Final Recommendations

Ultimately, it comes down to changing unit owner behaviour. The nature of community living is that people have the mentality that if something happens, “it’s not my problem.” They are quick to make claims and resist taking responsibility. This can be seen in the number of claims made by multi-unit residences as compared to single family homes or commercial properties. More than 90% of claims are coming from water problems: appliances breaking down, aging piping issues, accidental triggers to sprinklers. All of these are avoidable when corporations and owners follow proper maintenance and replacement routines. You can find some relevant tips and information on the Government of BC official website.

It is crucial to also be proactive in communications with insurance brokers. See what specific advice they have and which projects could be taken on to make a property more attractive to insurers. Find out what steps they are taking with marketing your property and determine the communications plan to unit owners about potential increases.  While owners and corporations won’t see improvements to their premiums and deductibles immediately, over time, this will help increase their attractiveness to insurers and decrease their overall risk.

Normac has its finger to the pulse of the insurance industry and in response to the recent changes has implemented a new 60-90 day valuation delivery policy. In an effort to mitigate stress and provide brokers with ample marketing time, we now deliver our reports sooner.

For a no-obligation proposal, click here.

Are We Headed for a Collapse of the BC Condo Market?

A recent article from CTV News has some condominium owners in BC panicking as they grapple with an increasingly hard insurance market that could leave some strata corporations unable to pay high premiums or without coverage at all.

The Hard Insurance Market in BC

The onset of the hard insurance market is affecting the condo market across the country, with BC seeing especially difficult side effects in the multi-unit housing market. While climate change and an increase in the amount of property claims can be blamed, ultimately the hard market is caused by insurers operating at a negative cash flow for too long. The global insurance industry has been taking hit after hit over the past decade, following a long soft market where low premiums and deductibles contributed to annual losses for insurance companies. The multi-unit residential industry has not been profitable and many insurers are pulling out of the market all together. Chuck Byrne, Executive Director of the Insurance Brokers Association of BC (IBABC) explains, “The bottom line is that [the insurers are] not obligated to insure anybody for anything.”

For BC condo owners who were able to obtain insurance coverage for their strata, increasing insurance premiums and deductibles may lead to expensive special levies for condo owners. There are several hundred buildings currently citing 50%-400% increases in premiums which simply can’t be covered by a contingency reserve fund and must be funded through a special assessment. As stratas anticipate future increases, considerations must be made to increase monthly strata fees in order to fund the premiums in upcoming years. The question is whether home owners will be able to afford the increase to their monthly spends.

In other cases, some condominium buildings are left without coverage at all or with a loss limit, where the insurance does not cover total replacement cost.  In this situation, owners are at significant financial risk should a major peril ever occur. For instance, if an apartment building without insurance were to succumb to a fire, the self-insured owners who would be partially or entirely responsible for the rebuild.

BC Heading Towards a Collapse?

This is having trickle down effects on BC’s housing market. On one hand, mortgage lenders might not approve mortgage loans on a condo purchase where there is no insurance in place. Additionally, we may see situations where buyers are backing out of deals where adequate insurance has not been secured by the strata. When you put together BC’s ongoing issues with housing and affordability with the rise in premiums and deductibles, you have a recipe for disaster which could be leading to a collapse of BC’s condo market.

Some claim this could have been foreseen as the market stayed too soft for too long. But CHOA Executive Director, Tony Gioventu, claims that the extent of this crisis could not have been predicted. Those taking the hardest hit include expensive buildings with premium facilities and finishings, buildings with a high number of previous claims, or those who have failed to keep up with regular maintenance and repair.

The Insurance Bureau of Canada says that it is communicating with insurance brokers, underwriters, and condo groups to address the issues, with an upcoming regional meeting in BC scheduled for March. Other proposed recommendations coming from the IBABC include changes to the BC Strata Property Act:

  • Implementing a $50,000 cap on loss assessments to protect unit owners when a strata’s insurance deductible can be passed onto them if they are found at fault for a claim.

  • Introducing a standard definition of a strata unit, similar to what Alberta has just recently implemented.

The IBABC acknowledges that this won’t solve the imminent problem, but that it will help to build a strong foundation and “long-term stability [in] the BC strata insurance market.”

Normac has its finger to the pulse of the insurance industry and in response to the recent changes has implemented a new 60-90 day valuation delivery policy. In an effort to mitigate stress and provide brokers with ample marketing time, we now deliver our reports sooner.

For a no-obligation proposal, click here.

A Mock Strata Council Meeting for Okanagan Property Managers Takes Place in Kelowna

Normac co-sponsored a Professional Association of Managing Agents (PAMA) Educational Event on April 12th, 2019.  The breakfast seminar took place at Kelowna’s Ramada Inn with 29 property managers in attendance from cities across the Southern Interior including Kamloops, Vernon, Salmon Arm, Penticton, and Kelowna. The property managers in attendance were able to take part in a well-prepared mock council meeting addressing issues and situations that arise during a typical strata council meeting. The format of the seminar was entertaining and interesting; it gave those in attendance an opportunity to brainstorm and “problem-solve” through some challenging issues in small, breakout session groups.  We want to thank all those that attended and made this such a great and engaging event.

If you are in BC and interested in connecting with a large group of like-minded individuals, expanding your connections, and having access to a network of industry professional, then you should consider joining PAMA.  Being a PAMA member with an established real estate association gives you access to a community with over 2000 members and growing. Continuing education is a large component of what the PAMA association offers such as the mock council strata meeting event above. Wanting to learn more about becoming a PAMA member? Visit PAMA’s website HERE to join.

Did you know that Normac is Canada’s leading insurance appraisal firm? If you are in need of an insurance appraisal– request a quote from us today.  Visit us at HERE to request a quote.

 

Land Assembly Prevails, Strata Corporation to Wind Up

Barclay Terrace Land Assembly

Barclay Terrace is a 36 unit concrete condominium in Vancouver’s West End which was just approved for a land assembly sale as determined by BC Judge, Justice Warren B. Milman. This decision comes despite ongoing resistance from two owners.

The building is owned almost entirely by Barclay Thurlow Property Inc. and Shepstone Investments Inc., Westbank and Bosa companies respectively. These two majority owners have 34 units in the building and have been slowly buying out owners since 2015 with the goal of winding up the strata and selling the land for redevelopment. Under Bill 40, a strata only requires an 80% percent vote in favour of a wind up and these two developers currently own 94% of the building. We previously wrote an article about Bill 40 and that you can read about here.

While negotiations with the two minority owners occurred in 2015 and 2016, both ultimately declined offers citing the price was too low. The units, which were assessed at $672,000 and $793,000 in 2017 turned down offers between $2 million and $3.5 million.

Throughout the legal proceedings, the two minority owners claimed they had been holding out on the sale of their condos because the sale prices were too low and that they were not adequately informed during the sale process of the land assembly.

Milman, however in his decision on March 13, 2018, wrote, “The minority owners were not taken by surprise by what occurred. They were able to see the writing on the wall by late 2015 or early 2016, when the majority owners sought and then acquired a controlling block in pursuit of their patent agenda to redevelop the property. At that point, a dissolution and sale of Barclay Terrace was all but inevitable.”

Milman reject the owners’ notions that the price was unfair or prejudiced against them. He continues, explaining that the minority owners will receive “enormous premiums” above their 2017 assessed values thanks to the efforts of the majority owners. Milman also states that the minority owners were as well informed as well as they could be given that the majority owners were not able to disclose all the details of the of the sale agreement due to confidentiality clauses.

With the application to wind down the strata approved, the minority owners will now be forced to move out and find other housing.

This is not an uncommon experience for many owners in Vancouver and the GVRD. Under Bill 40, many developers have used this method of buying units one by one until they hold majority. They can then successfully wind down a strata as soon as they obtain 80% of the ownership. While many owners are able to negotiate higher sale prices for their units going this route, for owners wishing to stay, this does little to incentivize them.

While the two minority owners at Barclay Terrace received sale prices well above their assessed values, this will not be case for all owners. In East Vancouver, owners on the strip along Broadway between Nanaimo and Rupert are being promised millions of dollars above their assessed value if they sell their homes as part of a land assembly. Realtors are projecting that some owners could receive $2 million more than what their land is worth by marketing the lots to foreign developers unfamiliar with Vancouver’s zoning bylaws.

The problem with this particular example is that the area is zoned for affordable rental housing or ownership condominiums priced 20% below current market value. Homes like the ones along the Broadway strip in Vancouver’s East Side are being assessed for around $1.5 million dollars. However, they are being listed at prices that would otherwise be found in affluent areas of Vancouver’s West Side where the assessments are almost $2 million more.

It would be impossible to build affordable housing for those prices. The only way a developer could benefit from purchasing these lots is if they are able to hold onto the land after purchase in anticipation of zoning changes which are not guaranteed to take place. The realtors and owners are relying on the ignorance of foreign investors to be successful in their pursuit of a successful land assembly, directly contributing to Vancouver’s housing crisis. For the owners along Broadway, they are holding out for prices that they are unlikely to receive.

To read more about these two case, you can check out Stephanie Ip’s article in The Province and Jill Slattery’s article on Global News.

Here is a useful graphic that shows the steps of a strata wind up. As well, the Province of BC also has a great resource about strata termination for those considering this here.